Union Budget 2015: A Dampener for RE

By: Staff Reporter

New Delhi, March 8 (G’nY News Service): The Narendra Modi government has been a strong advocate of India’s push towards renewable and solar energy production as one of its effort to ensure universal energy access for India’s poor. The Ministry of New Renewable Energy (MNRE) has revised its target of renewable energy capacity to 1,75,000 MW till 2022, comprising 100,000 MW Solar energy. However, is the optimism and ambition being reflected in the Budget of 2015?

We spoke to Shubham Sandeep, director and co-founder of Aeon Solaris, a young and vibrant company dedicated to developing on-grid and off-grid solar power projects in India, on its way to becoming one of India’s leading clean energy based utility provider. Sandeep’s candid remarks about the impact of the Union budget on the future of renewable and solar energy industry are a great read.

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Shubham Sandeep, director and co-founder, Aeon Solaris

The government plans to increase India’s solar energy capacity from 1000 MW to 100,000 MW in the next seven years. How does the present provision made in the 2015 Union Budget aid that scheme?

During RE-Invest 2015 (the first Renewable Energy Global Investors Meet and Expo), which was held during 15th-17th February, the Government showcased its commitment to the development of renewable energy in India to meet the national energy requirement. It was the cause of a lot of excitement and encouragement in the solar energy sector for investors and private companies. However, this excitement and enthusiasm has not been translated into the budget. A lot of aggressive goals were set, but no planned vision has been created as to how they plan to actually go about achieving these goals.

What has been done to encourage the investment of private companies into the solar energy?

The current legal system is poor, contract law is weak, and it takes years to solve legal disputes. The finance minister Arun Jaitly has put forth a proposal for the quick resolution of commercial disputes by setting up exclusive commercial divisions. This gives confidence to the investors, not just in the field of solar energy, but in other sectors as well. There is also talk of reducing or removing the concept of subsidies over time, which will give private companies a level playing field and encourage a purely capitalistic market.

It is being said that the excise duty on round copper wire and tin alloys is a good move but it does not have a lot of impact on project costs. What are your thoughts on the matter?

That’s actually true. It’s a good move as it incentivizes manufacturing. However, when it comes to reducing the actual project cost the impact is less than 0.25 per cent.

One major expectation from the budget this year was the reduction of the minimum applicable tax (MAT), but the solar energy companies are still paying 18 per cent MAT. What do you think the impact of this would be on the government’s scheme to increase solar power capacity?

It was a huge expectation for all companies and investors involved in solar energy. The reduction, if not removal, of the MAT would make investment more viable and increased the availability of finance.

Any final thoughts or key takeaways?
There are three major points that need to emphasised.
Tax free bonds have been specifically proposed for rail and roads, but no provisions have been made for green energy even though it was one of the main expectations from the budget this year. It would have increased the availability of investment in the field of clean energy.

• Rs.2400 crores were pledged to the clean energy sector, but the government has Rs. 1500 crores of outstanding dues, so actual allocation of funds is low.

• Interest rate on financing in India is one of the highest in the world at 12-13 per cent. There was a lot of talk in the beginning of the year that it may be reduced for the clean energy sector as it is a high priority area, but no steps were taken to actually make that a reality.

• However, the biggest takeaway is that even though the government has set an ambitious target to increase the capacity of clean and solar energy, a detailed plan as to how the government is to achieve this goal is yet to be established. Until that is done, all the enthusiasm and talk about India’s shift to clean and solar energy will amount to nothing.

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